The role of cells of the hematopoietic lineage in fibrosis associated with interstitial lung disease (ILD) is controversial; whether monocytes solely differentiate into macrophages that activate resident fibroblasts, or if they can also differentiate into fibrocytes (CD45+/Col I+ cells) that then differentiate into fibroblasts has been debated. By using systemic bleomycin to induce fibrosis in a bone marrow transplant and transgenic mouse models, as well as using human lung tissue from a patient with scleroderma-associated ILD, we studied the contribution of the hematopoietic lineage to the fibroblast population using flow cytometry and single cell RNA sequencing. Further, our studies revealed reasons why fibrocytes are lost when fibroblast cultures are passaged. Finally, we evaluated how treatment of mice with a novel, water-soluble version of caveolin scaffolding domain (CSD) called WCSD affects fibrocyte accumulation and fibrosis in our animal model. We found that during fibrosis, fibrocytes increase in number and in their expression of Col I both in the lung tissue and in the bronchiolar lavage fluid (BAL). The appearance of Col I in CD45+ precursors occurs after their recruitment into the lung. Interestingly, fibrocytes express higher levels of monocyte/macrophage markers (CD45, CD16, CD68, CD206) than do CD45+/Col I- cells. In vitro experiments demonstrated that CD45+/Col I+ cells are at first predominant in fibroblast cultures, but then are lost progressively during passage. Furthermore, these fibrocytes do not appear to grow in vitro in the absence of CD45-/Col I+ fibroblasts. Treating mice with WCSD inhibited fibrocyte accumulation as well as overall collagen I, Tenascin C, α-sma, and HSP47 levels and vascular leakage. The decreased fibrocyte accumulation may result both from decreased precursor recruitment due at least in part to decreased vascular permeability and from decreased differentiation of fibrocytes from CD45+/Col I- precursor monocytes. In summary, CD45+ cells accumulate in lung tissue during fibrosis and contribute to pathological remodeling by differentiating into myofibroblasts that overexpress ECM proteins and myofibroblast markers. Their contribution to fibrosis can be inhibited by WCSD which serves as a surrogate for caveolin-1, a protein known to be reduced in expression in multiple cell types from patients with fibrotic lung disease